OTE

–

LOANS

AND ALLOWANCE FOR LOAN LOSSES

Loans are comprised of the following:	September 30,			December 31,
	2019			2018
Residential real estate	$	314,761		$	304,079
Commercial real estate:
Owner-occupied		58,062			61,694
Nonowner-occupied		128,698			117,188
Construction		36,307			37,478
Commercial and industrial		100,509			113,243
Consumer:
Automobile		65,195			70,226
Home equity		23,658			22,512
Other		52,863			50,632
		780,053			777,052
Less: Allowance for loan losses		(6,153	)		(6,728	)

Loans, net	$	773,900		$	770,324

The following table presents the activity in the allowance for loan losses by portfolio segment for the

three

months ended

September 30, 2019

and

2018:

September 30, 2019	Residential Real Estate			Commercial Real Estate			Commercial and Industrial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	1,973		$	2,222		$	1,095		$	2,111		$	7,401
Provision for loan losses		(165	)		(536	)		1,193			(48	)		444
Loans charged off		(465	)		----			(1,168	)		(419	)		(2,052	)
Recoveries		80			92			11			177			360
Total ending allowance balance	$	1,423		$	1,778		$	1,131		$	1,821		$	6,153

September 30, 2018	Residential Real Estate			Commercial Real Estate			Commercial and Industrial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	1,886		$	2,392		$	1,242		$	2,119		$	7,639
Provision for loan losses		681			(378	)		197			462			962
Loans charged-off		(184	)		----			(136	)		(722	)		(1,042	)
Recoveries		49			431			80			196			756
Total ending allowance balance	$	2,432		$	2,445		$	1,383		$	2,055		$	8,315

The following table presents the activity in the allowance for loan losses by portfolio segment for the

nine

months ended

September 30, 2019

and

2018:

September 30, 2019	Residential Real Estate			Commercial Real Estate			Commercial and Industrial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	1,583		$	2,186		$	1,063		$	1,896		$	6,728
Provision for loan losses		96			(403	)		1,497			825			2,015
Loans charged off		(872	)		(579	)		(1,512	)		(1,612	)		(4,575	)
Recoveries		616			574			83			712			1,985
Total ending allowance balance	$	1,423		$	1,778		$	1,131		$	1,821		$	6,153

September 30, 2018	Residential Real Estate			Commercial Real Estate			Commercial and Industrial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	1,470		$	2,978		$	1,024		$	2,027		$	7,499
Provision for loan losses		1,261			(1,041	)		196			1,279			1,695
Loans charged-off		(421	)		(1	)		(140	)		(1,818	)		(2,380	)
Recoveries		122			509			303			567			1,501
Total ending allowance balance	$	2,432		$	2,445		$	1,383		$	2,055		$	8,315

The following table presents the balance in the allowance for loan losses and the recorded investment of loans by portfolio segment and based on impairment method as of

September 30, 2019

and

December 31, 2018:

September 30, 2019	Residential Real Estate		Commercial Real Estate		Commercial and Industrial		Consumer		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	----	$	----	$	----	$	----	$	----
Collectively evaluated for impairment		1,423		1,778		1,131		1,821		6,153
Total ending allowance balance	$	1,423	$	1,778	$	1,131	$	1,821	$	6,153

Loans:
Loans individually evaluated for impairment	$	445	$	11,342	$	5,102	$	356	$	17,245
Loans collectively evaluated for impairment		314,316		211,725		95,407		141,360		762,808
Total ending loans balance	$	314,761	$	223,067	$	100,509	$	141,716	$	780,053

December 31, 2018	Residential Real Estate		Commercial Real Estate		Commercial and Industrial		Consumer		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	----	$	98	$	----	$	----	$	98
Collectively evaluated for impairment		1,583		2,088		1,063		1,896		6,630
Total ending allowance balance	$	1,583	$	2,186	$	1,063	$	1,896	$	6,728

Loans:
Loans individually evaluated for impairment	$	1,667	$	3,835	$	7,116	$	----	$	12,618
Loans collectively evaluated for impairment		302,412		212,525		106,127		143,370		764,434
Total ending loans balance	$	304,079	$	216,360	$	113,243	$	143,370	$	777,052

The following tables present information related to loans individually evaluated for impairment by class of loans as of

September 30, 2019

and

December 31, 2018:

September 30, 2019	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With an allowance recorded	$	----	$	----	$	----
With no related allowance recorded:
Residential real estate		445		445		----
Commercial real estate:
Owner-occupied		3,244		3,244		----
Nonowner-occupied		9,421		8,098		----
Construction		323		----		----
Commercial and industrial		6,277		5,102		----
Consumer:
Home equity		350		350		----
Other		6		6		----
Total	$	20,066	$	17,245	$	----

December 31, 2018	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With an allowance recorded:
Commercial real estate:
Nonowner-occupied	$	362	$	362	$	98
With no related allowance recorded:
Residential real estate		1,667		1,667		----
Commercial real estate:
Owner-occupied		2,527		2,527		----
Nonowner-occupied		2,368		946		----
Construction		336		----		----
Commercial and industrial		7,116		7,116		----
Total	$	14,376	$	12,618	$	98

The following tables present information related to loans individually evaluated for impairment by class of loans for the

three

and

nine

months ended

September 30, 2019

and

2018:

	Three months ended September 30, 2019						Nine months ended September 30, 2019
	Average Impaired Loans		Interest Income Recognized		Cash Basis Interest Recognized		Average Impaired Loans		Interest Income Recognized		Cash Basis Interest Recognized
With an allowance recorded	$	----	$	----	$	----	$	----	$	----	$	----
With no related allowance recorded:
Residential real estate		446		4		4		469		20		20
Commercial real estate:
Owner-occupied		3,349		53		53		3,144		167		167
Nonowner-occupied		7,949		142		142		6,243		370		370
Construction		----		5		5		----		15		15
Commercial and industrial		6,089		110		110		6,110		352		352
Consumer:
Home equity		175		15		15		87		15		15
Other		6		----		----		5		----		----
Total	$	18,014	$	329	$	329	$	16,058	$	939	$	939

	Three months ended September 30, 2018						Nine months ended September 30, 2018
	Average Impaired Loans		Interest Income Recognized		Cash Basis Interest Recognized		Average Impaired Loans		Interest Income Recognized		Cash Basis Interest Recognized
With an allowance recorded:
Residential real estate	$	707	$	----	$	----	$	711	$	----	$	----
Commercial real estate:
Nonowner-occupied		365		3		3		368		12		12
With no related allowance recorded:
Residential real estate		219		4		4		222		34		34
Commercial real estate:
Owner-occupied		2,434		36		36		2,462		105		105
Nonowner-occupied		1,786		11		11		2,154		47		47
Construction		----		5		5		----		15		15
Commercial and industrial		5,753		89		89		5,474		321		321
Total	$	11,264	$	148	$	148	$	11,391	$	534	$	534

The recorded investment of a loan is its carrying value excluding accrued interest and deferred loan fees.

Nonaccrual loans and loans past due

days or more and still accruing include both smaller balance homogenous loans that are collectively evaluated for impairment and individually classified as impaired loans.

The Company transfers loans to other real estate owned, at fair value less cost to sell, in the period the Company obtains physical possession of the property (through legal title or through a deed in lieu). As of

September 30, 2019

and

December 31, 2018,

other real estate owned for residential real estate properties totaled

$68

In addition, nonaccrual residential mortgage loans that are in the process of foreclosure had a recorded investment of

$1,561

and

$2,375

as of

September 30, 2019

and

December 31, 2018,

respectively.

The following table presents the recorded investment of nonaccrual loans and loans past due

days or more and still accruing by class of loans as of

September 30, 2019

and

December 31, 2018:

September 30, 2019	Loans Past Due 90 Days And Still Accruing		Nonaccrual

Residential real estate	$	242	$	6,090
Commercial real estate:
Owner-occupied		151		139
Nonowner-occupied		----		765
Construction		----		187
Commercial and industrial		4		515
Consumer:
Automobile		234		66
Home equity		----		407
Other		305		83
Total	$	936	$	8,252

December 31, 2018	Loans Past Due 90 Days And Still Accruing		Nonaccrual

Residential real estate	$	19	$	6,661
Commercial real estate:
Owner-occupied		----		470
Nonowner-occupied		362		574
Construction		66		416
Commercial and industrial		31		228
Consumer:
Automobile		270		59
Home equity		91		183
Other		228		86
Total	$	1,067	$	8,677

The following table presents the aging of the recorded investment of past due loans by class of loans as of

September 30, 2019

and

December 31, 2018:

September 30, 2019	30-59 Days Past Due		60-89 Days Past Due		90 Days Or More Past Due		Total Past Due		Loans Not Past Due		Total

Residential real estate	$	3,437	$	1,728	$	1,496	$	6,661	$	308,100	$	314,761
Commercial real estate:
Owner-occupied		1,141		----		248		1,389		56,673		58,062
Nonowner-occupied		194		231		338		763		127,935		128,698
Construction		93		----		----		93		36,214		36,307
Commercial and industrial		1,618		8		121		1,747		98,762		100,509
Consumer:
Automobile		1,098		229		245		1,572		63,623		65,195
Home equity		137		24		372		533		23,125		23,658
Other		633		136		312		1,081		51,782		52,863
Total	$	8,351	$	2,356	$	3,132	$	13,839	$	766,214	$	780,053

December 31, 2018	30-59 Days Past Due		60-89 Days Past Due		90 Days Or More Past Due		Total Past Due		Loans Not Past Due		Total

Residential real estate	$	3,369	$	1,183	$	1,642	$	6,194	$	297,885	$	304,079
Commercial real estate:
Owner-occupied		298		----		129		427		61,267		61,694
Nonowner-occupied		299		----		747		1,046		116,142		117,188
Construction		31		----		265		296		37,182		37,478
Commercial and industrial		428		192		110		730		112,513		113,243
Consumer:
Automobile		1,287		286		289		1,862		68,364		70,226
Home equity		171		92		260		523		21,989		22,512
Other		593		291		228		1,112		49,520		50,632
Total	$	6,476	$	2,044	$	3,670	$	12,190	$	764,862	$	777,052

Troubled Debt Restructurings:

A troubled debt restructuring (“TDR”) occurs when the Company has agreed to a loan modification in the form of a concession for a borrower who is experiencing financial difficulty. All TDR’s are considered to be impaired. The modification of the terms of such loans included

one

or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; a reduction in the contractual principal and interest payments of the loan; or short-term interest-only payment terms.

The Company has allocated reserves for a portion of its TDR’s to reflect the fair values of the underlying collateral or the present value of the concessionary terms granted to the customer.

The following table presents the types of TDR loan modifications by class of loans as of

September 30, 2019

and

December 31, 2018:

September 30, 2019	TDR’s Performing to Modified Terms		TDR’s Not Performing to Modified Terms		Total TDR’s
Residential real estate:
Interest only payments	$	211	$	----	$	211
Commercial real estate:
Owner-occupied
Interest only payments		905		----		905
Reduction of principal and interest payments		1,532		----		1,532
Maturity extension at lower stated rate than market rate		412		----		412
Credit extension at lower stated rate than market rate		395		----		395
Nonowner-occupied
Rate reduction		----		258		258
Credit extension at lower stated rate than market rate		556		----		556
Commercial and industrial:
Interest only payments		4,196		133		4,329
Reduction of principal and interest payments		191		----		191

Total TDR’s	$	8,398	$	391	$	8,789

December 31, 2018	TDR’s Performing to Modified Terms		TDR’s Not Performing to Modified Terms		Total TDR’s
Residential real estate:
Interest only payments	$	216	$	----	$	216
Commercial real estate:
Owner-occupied
Interest only payments		968		----		968
Reduction of principal and interest payments		529		----		529
Maturity extension at lower stated rate than market rate		469		----		469
Credit extension at lower stated rate than market rate		402		----		402
Nonowner-occupied
Interest only payments		----		385		385
Rate reduction		----		362		362
Credit extension at lower stated rate than market rate		561		----		561
Commercial and industrial:
Interest only payments		4,742		----		4,742

Total TDR’s	$	7,887	$	747	$	8,634

September 30, 2019,

the balance in TDR loans increased

$155,

1.8%,

from year-end

2018.

The Company had

specific allocations in reserves to customers whose loan terms have been modified in TDR’s at

September 30, 2019,

as compared to

$98

in reserves at

December 31, 2018.

September 30, 2019,

the Company had

$1,428

in commitments to lend additional amounts to customers with outstanding loans that are classified as TDR’s, as compared to

$758

December 31, 2018.

There were

TDR loan modifications that occurred during the

three

months ended

September 30, 2019.

Furthermore, there were

TDR loan modifications that occurred during the

three

and

nine

months ended

September 30, 2018.

The following table presents the pre- and post-modification balances of TDR loan modifications by class of loans that occurred during the

nine

months ended

September 30, 2019:

			TDR’s Performing to Modified Terms				TDR’s Not Performing to Modified Terms
Nine months ended September 30, 2019	Number of Loans		Pre- Modification Recorded Investment		Post- Modification Recorded Investment		Pre- Modification Recorded Investment		Post- Modification Recorded Investment
Residential real estate:
Interest only payments		1	$	292	$	292	$	----	$	----
Commercial and Industrial:
Interest only payments		1		282		282
Total TDR’s		2	$	574	$	574	$	----	$	----

The TDR’s described above had

impact on the allowance for loan losses and resulted in

charge-offs during the

nine

months ended

September 30, 2019.

During the

third

quarter of

2019,

the Company had

one

TDR loan totaling

$133

that experienced a payment default within

twelve

months following its loan modification. This commercial and industrial loan was

first

modified as a TDR in

April 2019

and was converted to nonaccrual status in

August 2019.

The Company had

additional TDR’s that, during the

three

and

nine

months ended

September 30, 2019

and

2018,

experienced any payment defaults within

twelve

months following their loan modification. A default is considered to have occurred once the TDR is past due

days or more or it has been placed on nonaccrual. TDR loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. These risk categories are represented by a loan grading scale from

through

11.

The Company analyzes loans individually with a higher credit risk rating and groups these loans into categories called “criticized” and ”classified” assets. The Company considers its criticized assets to be loans that are graded

and its classified assets to be loans that are graded

through

11.

The Company’s risk categories are reviewed at least annually on loans that have aggregate borrowing amounts that meet or exceed

$750.

The Company uses the following definitions for its criticized loan risk ratings:

Special Mention.

Loans classified as special mention indicate considerable risk due to deterioration of repayment (in the earliest stages) due to potential weak primary repayment source, or payment delinquency. These loans will be under constant supervision, are

not

classified and do

not

expose the institution to sufficient risks to warrant classification. These deficiencies should be correctable within the normal course of business, although significant changes in company structure or policy

may

be necessary to correct the deficiencies. These loans are considered bankable assets with

apparent loss of principal or interest envisioned. The perceived risk in continued lending is considered to have increased beyond the level where such loans would normally be granted. Credits that are defined as a troubled debt restructuring should be graded

higher than special mention until they have been reported as performing over

one

year after restructuring.

The Company uses the following definitions for its classified loan risk ratings:

Substandard.

Loans classified as substandard represent very high risk, serious delinquency, nonaccrual, or unacceptable credit. Repayment through the primary source of repayment is in jeopardy due to the existence of

one

or more well defined weaknesses and the collateral pledged

may

inadequately protect collection of the loans. Loss of principal is

not

likely if weaknesses are corrected, although financial statements normally reveal significant weakness. Loans are still considered collectible, although loss of principal is more likely than with special mention loan grade

loans. Collateral liquidation is considered likely to satisfy debt.

Doubtful.

Loans classified as doubtful display a high probability of loss, although the amount of actual loss at the time of classification is undetermined. This classification should be temporary until such time that actual loss can be identified, or improvements made to reduce the seriousness of the classification. These loans exhibit all substandard characteristics with the addition that weaknesses make collection or liquidation in full highly questionable and improbable. This classification consists of loans where the possibility of loss is high after collateral liquidation based upon existing facts, market conditions, and value. Loss is deferred until certain important and reasonable specific pending factors which

may

strengthen the credit can be more accurately determined. These factors

may

include proposed acquisitions, liquidation procedures, capital injection, receipt of additional collateral, mergers, or refinancing plans. A doubtful classification for an entire credit should be avoided when collection of a specific portion appears highly probable with the adequately secured portion graded substandard.

Loss

Loans classified as loss are considered uncollectible and are of such little value that their continuance as bankable assets is

not

warranted. This classification does

not

mean that the credit has absolutely

recovery or salvage value, but rather it is

not

practical or desirable to defer writing off this asset yielding such a minimum value even though partial recovery

may

be affected in the future. Amounts classified as loss should be promptly charged off.

Criticized and classified loans will mostly consist of commercial and industrial and commercial real estate loans. The Company considers its loans that do

not

meet the criteria for a criticized and classified asset rating as pass rated loans, which will include loans graded from

(Prime) to

(Watch). All commercial loans are categorized into a risk category either at the time of origination or reevaluation date. As of

September 30, 2019

and

December 31, 2018,

and based on the most recent analysis performed, the risk category of commercial loans by class of loans was as follows:

September 30, 2019	Pass		Criticized		Classified		Total
Commercial real estate:
Owner-occupied	$	50,136	$	4,803	$	3,123	$	58,062
Nonowner-occupied		120,302		----		8,396		128,698
Construction		36,307		----		----		36,307
Commercial and industrial		88,687		1,460		10,362		100,509
Total	$	295,432	$	6,263	$	21,881	$	323,576

December 31, 2018	Pass		Criticized		Classified		Total
Commercial real estate:
Owner-occupied	$	50,474	$	7,724	$	3,496	$	61,694
Nonowner-occupied		115,170		----		2,018		117,188
Construction		37,321		----		157		37,478
Commercial and industrial		92,417		6,536		14,290		113,243
Total	$	295,382	$	14,260	$	19,961	$	329,603

The Company also obtains the credit scores of its borrowers upon origination (if available by the credit bureau), but the scores are

not

updated. The Company focuses mostly on the performance and repayment ability of the borrower as an indicator of credit risk and does

not

consider a borrower's credit score to be a significant influence in the determination of a loan's credit risk grading.

For residential and consumer loan classes, the Company evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment of residential and consumer loans by class of loans based on repayment activity as of

September 30, 2019

and

December 31, 2018:

September 30, 2019	Consumer
	Automobile		Home Equity		Other		Residential Real Estate		Total

Performing	$	64,895	$	23,251	$	52,475	$	308,429	$	449,050
Nonperforming		300		407		388		6,332		7,427
Total	$	65,195	$	23,658	$	52,863	$	314,761	$	456,477

December 31, 2018	Consumer
	Automobile		Home Equity		Other		Residential Real Estate		Total

Performing	$	69,897	$	22,238	$	50,318	$	297,399	$	439,852
Nonperforming		329		274		314		6,680		7,597
Total	$	70,226	$	22,512	$	50,632	$	304,079	$	447,449

The Company, through its subsidiaries, originates residential, consumer, and commercial loans to customers located primarily in the southeastern areas of Ohio as well as the western counties of West Virginia. Approximately

4.80%

of total loans were unsecured at

September 30, 2019,

down from

5.02%

December 31, 2018.